The People's Bank of China, the nation's central bank, said Friday that it will raise the required reserves of financial institutions at the central bank by 0.5 percentage points starting on July 5.

This means that the required reserves for State-run commercial banks and share-holding commercial banks will be increased from current 7.5 percent to 8 percent.

However, the bank said on its website that the current required reserves for rural credit cooperatives (including rural cooperative banks) will remain unchanged.

A bank official told the media that the move aims to further restrain the fast growth in lending this year and maintain a stable financial environment for the sustained and healthy development of the national economy.

The official, who asked to be anonymous, said China's national economy has maintained a steady and fast growth momentum this year, adding, however, some problems, including fast surge in fixed asset investment and lending, as well as climbing trade surplus, still exist.

The central bank said Wednesday the M2, the broad measure of money supply, rose 19.1 percent year-on-year to 31.67 trillion yuan at the end of May, compared with a 2006 target of 16 percent In May.

From January to May this year, China's total lending of Renminbi, the country's currency increased by 1.78 trillion yuan, or 793.9 billion yuan more than the same period of 2005.

The central bank believed that although the consumer price index is still relatively low, the rapid increase in credit would likely stimulate the economy to develop overheatedly and lead to inflation.

It is necessary to step up currency control policy while continuing to stick to an overall stable principle, it said.

It is reported that commercial banks' required reserves at the central bank currently amounted to 2.3 trillion yuan, in addition to 7 trillion yuan worth of floating state treasury bonds, financial bonds and central bank notes.

The hike of the required reserves by 0.5 percentage points can help freeze 150 billion yuan worth of floating money, according to bank sources.

(Xinhua News Agency June 17, 2006)